smart spending

12 financial tips for 2012

Don't put your credit card on ice
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Don't put your credit card on ice

If you have frozen your credit card in a block of ice to control your spending, you might want to pull out a hair dryer. Your lender will tag a credit card as inactive or close the account altogether if it remains dormant for too long, says Rod Griffin, director of public education at Experian. While that means you won't be a spendthrift, it also won't help boost your credit score. It may even hurt it.

Inactive credit cards don't contribute recent payment activity, which makes up the largest part of most credit scores.

"If you have an account, you need to use it to demonstrate that you can use the account well," says Griffin.

And if the account is closed, you won't get the benefit from the age of the credit card, which is another component that lifts credit scores, says Sarah Davies, senior vice president of analytics, product management and research at VantageScore Solutions.

Instead of hiding the credit card in a drawer, try practicing a little discipline. Use the card for one purpose only every month, such as gas, groceries or other necessities, and set up automatic payments to pay off the balance in full from your checking account. That way, you get points from the age of the card and your good payment history, and you also learn financial restraint.
--Janna Herron


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